Morgan Communities, the real estate company owned by embattled Rochester developer Robert C. Morgan, has completed the sale of about half of its portfolio – about 80 properties, including five in the Buffalo area – to a similarly named, but separate firm in Pennsylvania.
The deal with Morgan Properties of King of Prussia, Pa., includes 15,000 apartment units, across eight states. Another 3,000 units are slated to be acquired by year-end from Morgan Properties, for a total of 94 properties with 18,000 apartments.
That represents more than half of Morgan Communities' total portfolio at its height – of 180 properties and 36,000 apartments.
The properties are mostly in the upstate New York markets of Rochester, Buffalo, Syracuse and Albany, as well as in Pittsburgh and Harrisburg, Pa. Other assets are in Memphis, Chicago, Cleveland and Huntsville, Ala. – each of which are new to Morgan Properties. Eighty-eight properties are listed by address in a court document filed in the criminal case against Morgan, but that includes some that have not yet transferred.
Among the properties included in the full purchase are the Raintree Island and Paradise Lane Apartments in Tonawanda; the Maplewood Estates Apartments in Hamburg; the Idylwood Resort Apartments in Cheektowaga; and the Park Place Townhome Apartments in South Buffalo.
Neither Morgan company divulged the purchase price for the transaction, which will bring new management and financial support to the properties but still leaves them partly owned by Robert Morgan, who is under federal indictment for mortgage, insurance and wire fraud.
Morgan – who was charged along with his son, Todd – has pleaded not guilty to the charges, and a spokesman said the sale does not represent any admission of wrongdoing.
The sale was structured as a joint venture, according to Morgan Properties spokeswoman Kate Wilhelm, because it was seen as "the best way to stabilize the portfolio while also ensuring appropriate, reasonable protections." She would not divulge specifics about the percentage of ownership, but stressed that Robert Morgan does not have control or any vote in operating the portfolio.
Tenants are not expected to experience any changes, although the spokesman noted that the deal means the properties will receive the necessary funding for proper maintenance and operation. Morgan Properties has been managing the apartments since July, when the purchase agreement was signed, and the new owner already brought 750 Morgan Communities employees onto its own team, which now totals almost 2,000 employees.
“This portfolio fits our investment criteria given its size, scale, and unique repositioning opportunity,” Jason Morgan, principal at Morgan Properties, said in a statement. “We target opportunistic multifamily investments and are extremely well-positioned to stabilize this portfolio for the greater benefit of the residents, employees, and investors."
The deal makes Morgan Properties – which was founded in 1985 by Mitchell Morgan – one of the nation's five largest owners of multifamily apartment complexes, and the biggest in New York, Pennsylvania and Maryland. The company owns 75,000 apartments in 300 properties in 15 states, primarily in the Mid-Atlantic and Northeast regions.
The sale marks a major step in the downfall of Robert Morgan, who built a national real estate empire in mobile home parks and then apartments and commercial buildings, after he was shot and partially paralyzed in a botched armed robbery of his family's fish store in 1991.
Morgan's business grew rapidly, particularly in recent years, and expanded into commercial development, particularly in Rochester. He also partnered with several real smaller real estate developers in Buffalo who needed help with financing, and remains a joint owner in the Gates Circle redevelopment project with TM Montante. Montante is seeking to buy the Morgans out.
But Morgan's empire began to fall apart after his aggressive financing drew the attention of the FBI and the U.S. Attorney's Office in Buffalo, which launched a multi-year investigation that was first reported by The Buffalo News.
Authorities ultimately accused Morgan and the other defendants of falsifying rent rolls, financial statements, purchase agreements and other documents in a scheme to defraud lenders and obtain far more in loans than were justified by the actual value of the properties. He was also accused of deceiving insurance companies related to damage and other liability claims.
Morgan's finance chief, Michael Tremiti, and a Buffalo-area mortgage broker, Frank Giacobbe, are also charged in the 114-count indictment. Morgan's nephew, Kevin, pleaded guilty to federal charges, as did Giacobbe's partner, Patrick Ogiony, and Scott Cresswell, Morgan's former top lieutenant. All three are cooperating with authorities.
The government initially sought to seize some of the properties cited in the indictments and other court filings, asserting that they were part of a criminal scheme.
But according to documents filed late last week in federal court, and approved by U.S. District Court Judge Elizabeth Wolford, U.S. prosecutors agreed not to pursue forfeiture claims against any of the properties that are part of the new sale – including 14 properties that were specifically targeted.
Instead, authorities will make their claims against the value of Robert Morgan's investments in the real estate, as represented by special shares in the properties, which Morgan and his family agreed not to sell or transfer while the criminal case is pending. Any income earned from their investments will be kept in a separate escrow account maintained by the joint venture.
A separate civil lawsuit by the U.S. Securities and Exchange Commission accuses Morgan of operating a "Ponzi-scheme"-type of fraud by raising money from investors to purportedly fund his real estate ventures, but then using newer investors to pay off old ones and maturing loans. Morgan has rejected the allegations, and has insisted that he always planned to repay investors and lenders.
About $60 million in proceeds from the sale to Morgan Properties will be used in part to repay the investors cited in the SEC lawsuit.